Industry, banks favour Rs1,000-crore capital base for bank start-ups

Industry federations and associations of banks have generally favoured a minimum capital of Rs1,000 crore for new private banks, which they say, may be scaled up to Rs1,500-2,000 crore over a period of time, while NBFCs and micro finance institutions have preferred a lower start-up capital base of Rs300 to Rs500 crore.

While industry federations and associations as well as NBFCs and MFIs are in favour of permitting business houses to promote new banks, most other stakeholders have advised the Reserve Bank of India to exercise caution on allowing industrial houses into the banking sector as the large capital buffer that would be available to such banks would create an uneven playing field for the existing banks. They also cited the unsavory past experience in India and abroad.

Giving a gist of suggestions on a discussion paper circulated among all stakeholders, including banks, NBFCs and other financial sector entities as also the industry in general, the RBI said there was no unanimity of views on the minimum initial capital requirement of new banks.

Banks would require high investments in technology for financial inclusion and to scale up operations to be viable. Further, higher level of minimum capital would ensure that only serious players with long-term vision could enter banking sector, it was pointed out.

While they argue that 30- 40 banks with a capital base of Rs1,000 or above could be licensed within a period of the next 5-10 years, with dedicated focus on financial inclusion, NBFCs and MFIs are of the view that a high capital base would limit banks' focused operation.

They say that a large bank with capital of Rs1,000 crore is unlikely to be effective at local lending or at financial inclusion and, therefore, RBI may also consider giving restricted (traditional) banking licences to about 20 new banks with minimum capital of Rs50 crore and a capital to asset ratio of not less than 15 per cent.